Homebuyers Beware: Why the ‘Whichever is Earlier’ Clause Can Hurt You Financially

Industry experts have raised concerns over a common clause in builder-buyer agreements that ties payment schedules to a construction milestone or a calendar date—whichever occurs earlier. This provision, often overlooked by buyers, can financially strain them if construction delays occur.

Case Study: Pune Homebuyer Faces Payment Without Progress

In 2022, a Pune-based homebuyer, Ramesh Mehta, booked an under-construction apartment. His agreement mentioned that instalments were due upon either the completion of a construction milestone or 60 days from the booking date—whichever was earlier. Even though the first-floor slab wasn’t completed, he was asked to pay the second instalment on the 60th day. Left with no choice due to the clause, Mehta paid. Eventually, the construction stalled, leaving him financially burdened without possession.

Clause Breakdown: What Does 'Whichever is Earlier' Mean?

The clause mandates that a buyer must pay either when a milestone is reached or when a pre-fixed time lapses—whichever comes first. As per Jayesh Rathod, Co-founder and Director of The Guardians Real Estate Advisory, this can force buyers to pay even when a project hasn’t progressed, potentially leading to premature cash outflows and loan burdens.

Impact on Agreements

According to Santhosh Kumar, Vice Chairman of ANAROCK Group, this clause is frequently linked to key project events like loan disbursements or approval milestones. If these events happen earlier than the fixed timeline, the buyer must pay immediately or risk losing the booking or paid amounts.

Precautions Buyers Should Take

Demand Proof of Milestone Achievement

Though developers often share project photographs or engineer certifications with demand notices, the agreement must clearly specify that such demands should only be considered valid if backed by certified documentation proving actual progress.

Align Payments with Actual Progress

Shubhi Jain, Principal Partner at Square Yards, suggests that payment schedules should match real development stages. This helps buyers manage finances better and avoid unnecessary EMIs on under-construction loans.

Legal Consequences of Inaction

Ignoring a payment notice can lead to penalties, interest charges, or cancellation of the booking. Kumar adds that the clarity of milestone definitions in the agreement significantly affects the buyer’s options for legal recourse via RERA or consumer forums.

Know Your Rights and Negotiate Smartly

RERA regulations empower homebuyers in India to negotiate their payment plans. These should ideally be linked to verified construction stages such as slab completion or receipt of Occupancy Certificate (OC). Rathod recommends consulting a legal expert during the agreement drafting stage to ensure the payment terms are buyer-friendly.

Kumar concurs, emphasizing that linking payments to tangible milestones like floor completion or CC/OC application is a more financially sound strategy for buyers.

Disclaimer: This article is for informational purposes only. Homebuyers are advised to consult a legal professional before signing any property-related agreement.